Cayman's Economic Slide Prompts Expat Departures

Caymannetnews 16 March 2001 http://www.caymannetnews.com If there is one vision which is conjured up in the average 'Cayman watcher's' mind - locally and overseas - is that of a place that is vigorous in every way and that it's 'business as usual'. Oddly though, in recent days, the very people and entities accustomed to touting the virtues of Cayman's robust business climate, are silent regarding the state of the economy, which continues to slide. We refer to the associations representing the banks, off-shore companies and insurance management companies, accountants, the Cayman Islands Chamber of Commerce and the two tourism associations, which have agreed to merge at the end of this month. While it may seem prudent by these august bodies representing the two present pillars of the economy, the absence of their concerns is either a continuation of their traditional apathy or a reflection of their own inability to be responsive to matters which could have long-term effects on the country's economic future. Quietly, ever so quietly, a surprising number of residents are making plans to depart from the Cayman Islands, citing a continuing drop in business, and no hope for them and their families being accepted as residents - or getting security of tenure - after having spent over 10 years or more in this country. It is at times like these, when no one is saying anything, except those who are feeling the pinch, that rumors have a field day. Instead of waiting for these to subside, Cayman Net News, in trying to separate truth from fiction over the past week, has talked with a considerable number of business leaders, and have heard without exception - that the economy is definitely in a slump; business is bad and the future is not looking bright There is a considerable amount of nervousness surrounding the delayed budget. It has also been reported that the outstanding development in the growth of companies on the register for the fiscal years 1999 and 2000, has been replaced with a worrying reduction of renewals. The Cayman Islands is often compared to Bermuda, a sister overseas territory. What is forgotten though, is that Bermuda, for many years prior to Cayman, has been through many trials and errors to earn the respected position it has in tourism and finance. Bermuda, also because of its ability to recognise the need to be advanced in offering offshore investors what they need in terms of services and communications, has forged ahead by capturing a multi-million base of emerging e-business. Governments of other emerging 'offshore financial centres' are also spending hundreds of millions to catch up and stay in the race for Internet technology as a new way of doing business. In the same way that a plant accustomed to turning out a particular type of vehicle for years and years has to be retooled to meet its competition head on, so too should the Cayman Islands, with the help of its partners in finance who have come here and have done so well. The story is well known. Many years ago, the ailing Chrysler Corporation was faced with shutting down many of its plants, retrenching thousands of workers directly and indirectly associated with it. Chrysler's then leader, the physically big Lee Iacocca, went to the Federal Government and the big name banks in America, and put forward a plan for refinancing, which gave the company's ailing balance sheet the time and financial resources needed to put the company on the sound footing it needed to face its competitors. Mr. Iacocca sold the idea, and paid back every cent, long before it was due. Instead of trying to stretch or trim the resources of the Cayman's Islands which are already so obviously strained in personnel and revenue, a Chrysler plan needs to be put in place now. And those with the authority to negotiate should take the bold step and deal with those who have become quite wealthy financial Cayman entities.

Money Laundering is not just for the rich and famous anymore?

See the 4th Circuit case, U.S. v. Villarini, Lawyers Weekly No. 1-01-0259, Feb. 1, 2001. The defendant was a bank teller who stole $83,000 on her last day at work and then deposited the money in increments of a few thousand dollars into a Florida bank account. She was convicted on federal money laundering charges. The charge was vacated on the grounds of improper venue (should have been Florida, not Virginia), but the court affirmed the district court's denial of the motion for judgment of acquittal, finding that there was substantial evidence supporting the guilty verdicts on the money laundering counts.

Judge Bars Forfeiture of Seized Cash

Daniel Wise New York Law Journal February 6, 2001 The government gets only one bite at the apple when it seeks the forfeiture of cash seized from people as they are leaving the country, a judge in the U.S. District Court for the Eastern District of New York has ruled. In a potentially groundbreaking ruling that could throw a monkey wrench into the way the government handles cash forfeiture cases, Judge Charles P. Sifton held that the government's failure to contest certain findings relevant to sentencing in a criminal case could tie its hands when it later seeks to forfeit cash. The ruling clears the way for Cesar Castro, who was prosecuted criminally for failing to declare the proper amount of cash he was carrying, to retrieve $119,984 taken from him in 1996 as he was about to leave JFK Airport for the Dominican Republic. According to Castro's lawyer, Steven L. Kessler, Sifton is the first judge in the nation to bar the government from bringing a civil forfeiture proceeding after it has failed to challenge a finding in a pre-sentencing report that there is no link between cash seized by customs officers and criminal activity. Castro was sentenced in March 1997 to two year's probation and a fine of $2,500 for declaring only $2,000 cash, when in fact he was carrying $119,984. When informed by a customs officer that he had to declare any U.S. currency he was carrying in excess of $10,000, Castro told the officer that he was carrying only $2,000. He was subsequently searched and the cash taken from him. On Jan. 13, 1997, Castro pleaded guilty to one count of willful failure to report currency that was unrelated to any criminal activity. At his sentencing two months later, Castro was credited with six points under the U.S. Sentencing Guidelines for proving that the money was neither the proceeds of a crime nor intended to be used for an unlawful purpose. Without that finding, according to Kessler, Judge Sifton would have lacked the discretion to impose a sentence of probation. NO CRIMINAL PURPOSE The finding was contained in a pre-sentencing report prepared by the probation department, which is a court agency. At the time the report was issued, the prosecution chose not to challenge the probation department's finding that the cash could not be traced to a criminal activity or purpose. Two years later, when the government filed a civil action to forfeit the cash, the defense claimed that the lawsuit was undermined by the prior finding relating to the imposition of sentence. Citing a 1998 U.S. Supreme Court decision, U.S. v. Bajakajian, 524 U.S. 321, the defense contended that the forfeiture of unreported currency derived from a legal source is barred as an excessive fine under the Eighth Amendment. Sifton agreed that under the doctrine of collateral estoppel, the finding at sentencing that the cash was unconnected to a crime controlled the outcome of the civil forfeiture proceeding two years later. Kessler said that the ruling, if sustained, could have a major impact on the way the government handles forfeiture cases. In the two years since the Bajakajian ruling, he said, the government has brought hundreds of forfeiture cases after acquiescing to findings in pre-sentencing reports that the seized cash was unconnected to any criminal activity. William J. Muller, executive assistant U.S. Attorney in the Eastern District, declined to comment except to say that the decision is "under review." CIVIL FORFEITURE In concluding that collateral estoppel applies, Sifton held in U.S. v. U.S. Currency in the Amount of $119,984, 99-1978, that it was irrelevant whether the matter actually had been contested once the government declined to dispute the probation department's finding that the cash was clean. The prosecution in the criminal proceeding had ample incentive to have disputed the fact, but decided not to, he concluded. "The government's desire to impose appropriate punishment for persons who secretly export the proceeds of illegal activity is at least as great if not greater than the need to add $120,000 to the U.S. Treasury," he wrote. In a separate finding, Sifton concluded that Bajakajian's holding that the excessive fines clause applies to a criminal forfeiture proceeding is equally applicable in the context of a civil forfeiture proceeding like the one the government commenced against Castro. Whether the forfeiture is sought within the confines of a criminal prosecution, as was the case in Bajakajian, or a separate civil proceeding, the purpose is "punitive," he concluded. Simone Monasebian was co-counsel with Kessler in representing Castro. The prosecution was represented by Assistant U.S. Attorney David Goldberg.

Report Says Money Launderers Exploit Banks

By RIVA D. ATLAS, NY Times A report to be formally released today by Democrats on the staff of a Senate investigating panel says that money launderers have exploited the international system by which banks handle accounts for one another's customers, according to a copy provided in advance. The investigation was led by Senator Carl Levin of Michigan, the ranking Democrat on the Governmental Affairs Permanent Subcommittee on Investigations.

Bahamas Consents To Exchange Tax Information With US

Dow Jones Newswires NASSAU, Bahamas (AP)--Prime Minister Hubert Ingraham confirmed Wednesday that the Bahamas will negotiate a tax information-exchange agreement with the U.S. government. The tax agreement was linked to the Bahamas' recent approval by the U.S. Internal Revenue Service as a qualified jurisdiction to protect non-American clients' banking secrecy, Ingraham said in an announcement published in local newspapers. The qualified-jurisdiction status will allow approved Bahamian banks to protect the identities of non-American clients who have U.S. investments, avoiding the IRS penalty of holding back 30% of clients' earnings from U.S. investments for withholding such information. "Frankly, the Bahamas will not be able to sustain its recently approved status as a qualified jurisdiction without the conclusion of a tax information-exchange agreement and a demonstrated cooperation on tax matters," Ingraham said in the announcement. In June, the Organization for Economic Cooperation and Development branded the Bahamas and 34 other countries as tax havens. The U.S. is a member nation of the Paris-based OECD. The U.S. has been trying to forge a tax agreement with the neighboring Bahamas since 1983, similar to arrangements reached with other Caribbean nations. The Bahamas held off because of concerns about eroding the bank secrecy that drives its lucrative offshore sector. "We do not think it is in our best interest to sustain that position - hence, our determination to cooperate," Ingraham said. He didn't comment on the negotiations, nor say when they should be completed. The Bahamas also was one of 15 nations on an international money laundering blacklist issued by the OECD's Financial Action Task Force. In December, the country enacted nine laws to strengthen regulations in hopes it will be removed from the list this year.

Offshore Havens Balk At Rich Nations' Call For Tax Reform

Dow Jones Newswires ST. MICHAEL, Barbados (AP)--Wealthy countries aiming to recover billions of dollars lost to offshore tax havens are encountering resistance in trying to convince dozens of small nations with fragile economies to give up banking secrecy laws. Officials from about 40 countries and jurisdictions met Tuesday for a second and final day of talks about what the Paris-based Organization for Economic Cooperation and Development terms "harmful tax practices." "There's still a chasm to be brought together," Robert Mathavious, director of financial services for the British Virgin Islands, said after meetings Monday. "The OECD has their view, we have our view, and we haven't been able to merge them as yet." The leader of the British delegation, Gabriel Makhlouf, said, however, "A good dialogue has been established. There's a lot of consensus, really." The OECD's 30 member nations, which include the world's wealthiest industrialized nations, have set what they call international standards that they want all nations to abide by, and are threatening sanctions against governments that don't transform their no-tax and low-tax regimes. Caribbean leaders, whose countries have many of the richest tax havens in the world, say the developed nations appear to be trying to impose standards that could take away revenues from their islands. Fifteen Caribbean territories and nations are on a list of 35 alleged tax havens released in July by the OECD. The OECD has urged countries and territories on the tax havens list to make commitments to cooperate in making changes by the end of July. On Monday night, delegates gathered for an outdoor reception at the Barbadian prime minister's residence, where they chatted at an open bar to the sounds of a police band. Some discussion grew passionate when Caribbean officials got on the subject of the OECD's description of their tax practices as "harmful." "Harmful is not our word. It's their word," snapped Maurice Odle, an economic adviser for the Caribbean Community Secretariat. "A better word is comparative advantage. We have a comparative advantage," said Isaac Legair, a delegate from St. Lucia, which is on on the list of alleged tax havens. "When we beat them at something, they say it's unfair competition." Jeffrey Owens, the OECD's head of fiscal affairs, said he believes Caribbean governments would actually attract new business by adopting more stringent standards, thereby enhancing their reputations. "Our members are not afraid of fierce competition, as long as it's fair," he said. Last year, an OECD-related organization called the Financial Action Task Force issued a separate list of 15 countries considered uncooperative in fighting money laundering. Five of the jurisdictions are in the Caribbean - the Bahamas, the Cayman Islands, Dominica, St. Kitts and Nevis, and St. Vincent and the Grenadines. Many Caribbean leaders, although disturbed by the outside judgments, are anxious to avoid the stigma of being on the lists, and a few have since changed their laws to make them more open to foreign investigators. The U.S. and some other OECD member countries are threatening sanctions, which the organization calls "defensive measures," against governments that don't cooperate in reforming their tax laws. If discussion fails to bridge the gap, the Caricom Secretariat is considering taking the dispute before the World Trade Organization, Odle said. "We are resisting the notion of sanctions, using all that is at our disposal," he said.

JUST MARRIED: Van Brink and his wife arrive for the reception at the Sheraton yesterday

By M. Mugisha & E. Allio Controversial American Banker Arthur Van Brink of the defunct International Bank of Grenada (FIBG) yesterday married Annet Asiimwe and hosted a colourful reception at the Sheraton Kampala Hotel. The entrance to the reception hall room was patrolled by private and Sheraton hotel security personnel. A New Vision photographer and a reporter who were spotted by the security personnel were held and their cameras searched and a film the security thought contained Van Brink’s photos was impounded. The couple arrived in a Congolese registered white four wheel drive vehicle registration No. KV46670D. Van Brink formerly known as Gilbert Allen Zigler, owns many properties in Uganda including a luxury mansion on Mbuya hill.

LABUAN TO ADOPT PROTECTED CELL COMPANY STRUCTURE

Date: January 19, 2001 Source: tax-news.com Labuan is adopting the protected cell company structure in an attempt to shore up the jurisdiction's captive insurance industry. Mohd Razif Abdul Kadir, director general of the Labuan Offshore Financial Services Authority, says bringing in the PCC structure will "add variety to the existing rent-a-captive facility in Labuan and would enhance Labuan as the premier captive center." Razif says that apart from a risk management strategy, captives were increasingly being formed as part of efficient tax planning. He says a Labuan-based captive could choose to pay either 3% of net profits or a fixed rate of RM20,000 (about US$430) per year. He also emphasizes what he calls the competitive cost of setting up a captive in Labuan - 50% below the average due to the absence of stamp duty, while the related management fees are estimated at 30% below average.

B.C. residents sue former executives of offshore bank

By PETER KENNEDY Globe and Mail Update Vancouver — A statement of claim filed Dec. 8 in the Supreme Court of Grenada against executives of the Grenada-based Cambridge International Bank & Trust Co. alleges that some of the investors' money may have wound up in accounts at the failed First International Bank of Grenada Ltd. (FIBG), which was headed by an associate of former Uganda dictator Idi Amin. After securing banking licences in Grenada, Cambridge International and FIBG attracted investors in the United States and British Columbia by offering annual returns as high as 116 per cent to people willing to deposit money. "These people were motivated by greed," said Alan Clark, executive director of investigations at B.C.'s Financial Institutions Commission (FICOM). Mr. Clark said he does not know whether the two banks are connected. After receiving reports of unusual currency transactions from the Toronto-Dominion Bank in Penticton, B.C., in 1998, FICOM ordered FIBG to cease operations in the province two years ago, according to documents. In doing so, FICOM was also reacting to complaints from Maritime Life Assurance Co. which became alarmed about the number of policy holders that were cashing in all or a portion of their registered retirement savings plans and life insurance policies, according to documents. In a statement explaining his reasons for the shutdown order, Robert Hobart, British Columbia's superintendent of financial institutions, said $750,000 (Canadian) held by 26 Maritime clients was withdrawn and reinvested in FIBG through the offshore bank's Canadian agent Stephen Reynolds. Mr. Hobart also ordered Cambridge International Bank to cease operations in British Columbia last September for conducting business in Canada without a licence. The bank had no branches in the province, but had agents actively soliciting business on its behalf. Anselm Clouden, the Grenada lawyer acting for the investors, would not reveal details about how many B.C. residents are involved in the suit. "There are a few hundred, I think, but I can't divulge their names," he said. Mr. Clouden said the investors are part of a lawsuit launched against a group that includes four executives of Cambridge International Bank. In the Dec. 8 statement of claim, the investors allege they were defrauded of $50-million (U.S.) by a group of Cambridge International Bank executives led by the company's chairman and chief executive officer David Rowe and his wife Rhoda. A B.C. Securities Commission Web site shows that Mr. Rowe was registered to sell mutual funds in the province and worked for a number of companies including Canadian Global Investment Corp. until July, 1998. A BCSC spokesman said he believes Mr. Rowe is now living in the United States. Also named in the suit are Cambridge vice-president Gerry Burns, vice-president Mark Benda, officer Joe Trebble, and Mississippi lawyer Waylon McMullen. According to the allegations, the B.C. residents were part of a group of 550 investors who between 1998 and October, 2000, were persuaded by Cambridge executives to sink their funds into high-yield certificates offering annual interest rates of up to 51 per cent. The investors were issued certificates of deposits in denominations ranging from $5,000 to $670,000 entitling them to receive monthly interest payments, which were supposed to be credited to their accounts. The investors were allegedly told that their funds were safe, secure and free of risk because they were insured by International Depositors Re-Insurance Corp. However, the Cambridge International Bank executives are alleged to have transferred some of the funds to a number of banks, including the First Heritage Savings Credit Union in Langley, B.C., Bank of Nova Scotia, Toronto-Dominion Bank and Royal Bank of Canada, in addition to FIBG. The banks have not been accused of any wrongdoing. "My clients have complained that they have not been paid interest on the principal," Mr. Clouden said. "It is really bad." "We are now trying as best we can to see how the depositors can realize on their deposits before all the money disappears," Mr. Clouden said. B.C. Securities Commission spokesman Michael Bernard said he is also aware of the situation. "We are taking the appropriate steps, but we are prevented by the Canadian Securities Act from discussing them." Since the government of Grenada took over the offshore bank in August, 2000, it has been struggling to untangle a web of sub-banks and affiliated companies. The bank's founder Gilbert Ziegler, who changed his name to Van Brink, is reported to be living in Uganda in one of Mr. Amin's former residences, according to published reports.

EU Puts Pressure on Switzerland Over Banking Secrecy

January 19, 2001 GENEVA (Jan. 19) XINHUA - The European Union (EU) is urging Switzerland to make concessions on the issues of banking secrecy and tax evasion as a condition of further bilateral negotiations, according to Swiss Radio International. Commenting on Friday's meeting about a new round of bilateral talks, the Swiss secretary of state for foreign affairs, Franz von Daniken, was quoted as saying that issues such as fraud and taxation need to be addressed, but insisted that the Swiss government is not interested in striking deals of any sort. It is said that Europe loses billions of euro in taxes every year in transactions allegedly carried out in Switzerland. But the Swiss government has consistently made it clear it will not compromise on banking secrecy. Switzerland's Private Bankers Thursday spoke out against any compromise on taxation and banking secrecy. They said it would be a "catastrophe" to the EU in its fight against tax evasion. They added that it is out of the question for Switzerland to introduce a general and automatic exchange of information, as is foreseen in the EU's agreement on taxation of income from savings. Last May, Swiss voters approved a package of seven bilateral accords with the EU, governing issues from transport to the free movement of people.

Suspicious Transaction Guidelines Unveiled In The Bahamas

Financial Services Board 12th January 2001 This story is reproduced by kind permission of the Bahamas Financial Services Board at http://www.bfsb-bahamas.com Financial Intelligence Unit Preparing To Issue Suspicious Transaction Guidelines - Input To Be Sought From Financial Services Industry The Director of the newly-formed FIU of The Bahamas today issued a public notice indicating its intention to issue suspicious transactions guidelines, in accordance with sections 15 and 16 (1)(b) of the Financial Intelligence Unit Act, 2000 coming into force on December 29, 2000. Financial institutions likely to be affected have been invited to signal their interest in being consulted in the course of the development of such guidelines. The Financial Intelligence Unit Act, 2000 was a direct response to an FATF 2000 initiative, one of three initiatives inaugurated by supranational agencies and directed at international financial services in offshore jurisdictions. The Egmont Group of Financial Intelligence Units describes an FIU as "a central, national agency responsible for receiving (and, as permitted, requesting), analyzing and disseminating to the competent authorities disclosures of financial information (a) concerning suspected proceeds of crime, and (b) required by national legislation or regulation". Under the Act, The Bahamas FIU's function is to receive, analyze, obtain and disseminate information relating to the proceeds of an offence; all disclosures of information required to be made under the Proceeds of Crime Act, 2000 will be made to the FIU. The FIU Act was "benchmarked" to ensure compliance with acceptable practices in multiple jurisdictions. American, Canadian and Swiss banks -- and all other foreign banks operating in The Bahamas -- are not expected to have difficulty with provisions and powers of the Financial Intelligence Unit, as they all operate in jurisdictions with similar procedures and powers given to the equivalent agencies. The Prime Minister of The Bahamas has confirmed that the new Unit will operate under guidelines with which multi-national financial institutions elsewhere are familiar. "We are not asking banking institutions in The Bahamas to operate under rules that they are unfamiliar with. We are not asking them to have a reduced standard when they are in The Bahamas. We are asking them to conduct business in The Bahamas as they would in Zurich, or Toronto, or London or New York."

U.S. Government Issues New Money Laundering Guidance (Will help banks avoid corrupt foreign officials)

Date: January 16, 2001 The U.S. government has released new guidance to help U.S. financial institutions avoid transactions that may involve the proceeds of foreign official corruption. The U.S. Department of the Treasury, the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, and the Department of State jointly prepared the guidance as part of the National Money Laundering Strategy. The guidance, released January 16, encourages U.S. financial institutions to apply a high-level of scrutiny to large accounts and transactions that may involve the proceeds of corruption by senior foreign political figures, their immediate families or close associations, says a Treasury Department press release. The guidance provides suggested account establishment and maintenance procedures that are intended to help institutions obtain appropriate information on accounts held by such persons, as well as a list of potentially suspicious transactions that often warrant extra scrutiny. Following is the text of the guidance: (The guidance is also on the Internet at: http://www.treas.gov/press/releases/ps1123.htm ) (begin text) GUIDANCE ON ENHANCED SCRUTINY FOR TRANSACTIONS THAT MAY INVOLVE THE PROCEEDS OF FOREIGN OFFICIAL CORRUPTION ISSUED BY THE DEPARTMENT OF THE TREASURY, THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, THE OFFICE OF THE COMPTROLLER OF THE CURRENCY, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE OFFICE OF THRIFT SUPERVISION AND THE DEPARTMENT OF STATE January 2001 I. Introduction Action Item 2.1.1 of the National Money Laundering Strategy for 2000 calls for "[t]he Departments of the Treasury and Justice, and the federal bank regulators, [to] work closely with the financial services industry to develop guidance for financial institutions to conduct enhanced scrutiny of those customers and their transactions that pose a heightened risk of money laundering and other financial crimes." The expert-level working group convened to develop this Guidance, which was chaired by the Deputy Secretary of the Treasury and counted among its members representatives of each of the federal financial institutions supervisory agencies, concluded that there are several areas of potentially high-risk activity for which enhanced scrutiny may be appropriate. Initially, the working group has developed guidance for one type of high-risk activity -- namely, transactions involving senior foreign political figures, their immediate family or their close associates that may involve the proceeds of foreign official corruption. This "Guidance on Enhanced Scrutiny for Transactions that May Involve the Proceeds of Foreign Official Corruption" is being issued by the Department of the Treasury, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, and the Department of State. The working group determined to focus initially on transactions by senior foreign political figures and their close associates that may involve the proceeds of foreign official corruption for several reasons. First, while all significant corruption adversely affects individual segments in an economy, high-level corruption can be particularly damaging to a nation's economy and development. This sort of corruption can undermine local efforts to establish and strengthen market-based economic systems; interfere with the international community's efforts to support and promote economic development; discourage foreign private investment; and foster a climate conducive to financial crime and other forms of lawlessness. The impact of this form of corruption is felt disproportionately by developing nations. And this form of corruption directly impedes the achievement of a core United States diplomatic and international economic policy objective -- namely, the promotion of democratic institutions and economic development around the world. It is thus squarely in the United States' interest to combat this form of corruption. Depriving corrupt officials access to well-established international financial markets, including the United States financial system, can contribute significantly to achieve this goal. Second, a financial institution that engages in a financial transaction, knowing that the property involved in the transaction represents the proceeds of foreign official corruption, may be involved in the crime of money laundering under United States law, if the proceeds involved in the transactions were generated by a "specified unlawful activity," and if the other statutory elements are met See 18 U.S.C. 1956 & 1957. Third, regardless of whether the funds involved in the transaction constitute "proceeds" for the purposes of U.S. criminal money laundering laws, business relationships with persons who have high-ranking public positions in foreign governments, or other closely related persons or entities, can, under certain circumstances, expose financial institutions to significant risk, especially if the person involved comes from a country in which corruption and the illicit use of public office to obtain personal wealth may be widespread. This risk is even more acute if the person involved comes from a country whose counter-money laundering regime does not meet international financial transparency standards. Financial institutions that engage, directly or indirectly, in business relationships with senior political figures or closely related persons from such countries thus may be subjecting themselves to significant legal risks, reputational damage, or both. To assist financial institutions in ensuring that they do not unwittingly hide or move the proceeds of foreign official corruption, this document provides guidance to financial institutions in applying enhanced scrutiny to transactions by senior foreign political figures and closely related persons and entities. This Guidance is intended to help financial institutions more effectively detect and deter transactions that involve the proceeds of foreign corruption, and thus better protect themselves from being used as a conduit for such transactions. This Guidance contains suggested procedures for account opening and maintenance for persons known to be senior foreign political figures, their immediate family or their close associates. It also contains a list of questionable or suspicious activities that, when present, often will warrant enhanced scrutiny of transactions involving such persons. Banks should apply this Guidance to their private banking activities and accounts, and also may wish to apply this Guidance in connection with high dollar-value accounts or transactions in other relevant areas of their operations. Similarly, other financial institutions should apply this Guidance, as applicable, in connection with high dollar-value accounts or transactions in relevant parts of their operations. (Where this document refers to "accounts" and "business relationships," it should be read and understood in this fashion.) This Guidance is intended to build upon financial institutions' existing due diligence and anti-money laundering programs, policies, procedures and controls, and to assist financial institutions in the continuing design and development of comprehensive due diligence programs to identify and manage particular risks that may exist. Sound risk management policies and procedures vary among financial institutions and, therefore, the application of this Guidance also may vary among institutions. This Guidance is not a rule or regulation and should not be interpreted as such. It is advice that financial institutions are encouraged to employ in conjunction with policies, practices and procedures that are in place to enable financial institutions to comply with applicable laws and regulations and to minimize reputational risks. The Federal financial institutions supervisory agencies will continue to monitor whether financial institutions have appropriate controls to identify and deter money laundering, but will not examine, review or audit financial institutions solely for compliance with this Guidance. If, however, deficiencies emerge at a financial institution that would have been minimized or eliminated if the advice contained in this Guidance had been followed, the relevant financial institution supervisor, depending on the severity of the identified deficiencies, may require that the advice contained in this Guidance be integrated into the risk management policies and procedures of the affected institution. This Guidance is intended to be consistent with applicable civil and criminal laws as well as the regulations of the particular financial institution's supervisory or regulatory agency and the Department of the Treasury. It does not replace, supersede or supplant any financial institution's legal obligations, nor does compliance with this Guidance create a "safe harbor" against action by the United States, any federal agency, or the federal financial institutions supervisory agencies. II. Enhanced Scrutiny Guidance A. General As described further herein, financial institutions are encouraged to develop and maintain "enhanced scrutiny" practices and procedures designed to detect and deter transactions that may involve the proceeds of official corruption by senior foreign political figures, their immediate family, or their close associates. These practices and procedures should be viewed as an application of institutions' due diligence and anti-money laundering policies and procedures and should ensure that institutions report such activity as suspicious in accordance with applicable suspicious activity reporting requirements. In order to ensure that practical steps are taken to provide this enhanced scrutiny, it is prudent practice for a financial institution to review its practices in this area as part of its overall internal and external audit. The manner in which a financial institution may elect to apply the advice contained in this Guidance will vary depending on the extent of the risk determined to exist by each institution as a general matter, given its normal business operations, and in each case as it is presented. Each financial institution should exercise reasonable judgment in designing and implementing policies and procedures regarding senior foreign political figures, their immediate family and their close associates, and for determining any necessary actions to be undertaken by the institution regarding their transactions. This Guidance should not be read or understood as discouraging or prohibiting financial institutions from doing business with any legitimate customer, including a senior foreign political figure, or his or her immediate family or close associates. To the contrary, this Guidance is designed solely to assist financial institutions in determining whether a transaction by a senior foreign political figure, his or her immediate family or his or her close associates merits enhanced scrutiny so that the institution, through the application of such scrutiny, is better able to identify and avoid transactions involving the proceeds of foreign corruption and, as necessary and appropriate, to file suspicious activity reports. In undertaking the reasonable steps and reasonable efforts suggested in this Guidance concerning (1) whether a person or entity is a Covered Person (see Section II.B), (2) the establishment and maintenance of accounts for a Covered Person (see Section II.C), and (3) potentially questionable or suspicious activities involving a Covered Person's transactions (see Section II.D), a financial institution should not rely solely on information obtained from the Covered Person or his or her associates, but should attempt to obtain additional information from its organization and from independent sources (see Section II.E.). B. Definition of Covered Person For the purposes of this Guidance, a "Covered Person" is a person identified in the course of normal account opening, maintenance or compliance procedures to be a "senior foreign political figure," any member of a senior foreign political figure's "immediate family," and any "close associate" of a senior foreign political figure. A "senior foreign political figure" is a senior official in the executive, legislative, administrative, military or judicial branches of a foreign government (whether elected or not), a senior official of a major foreign political party, or a senior executive of a foreign government-owned corporation. In addition, a "senior foreign political figure" includes any corporation, business or other entity that has been formed by, or for the benefit of, a senior foreign political figure. The "immediate family" of a senior foreign political figure typically includes the figure's parents, siblings, spouse, children and in-laws. A "close associate" of a senior foreign political figure is a person who is widely and publicly known to maintain an unusually close relationship with the senior foreign political figure, and includes a person who is in a position to conduct substantial domestic and international financial transactions on behalf of the senior foreign political figure. When, during its normal account opening, maintenance or compliance procedures, a financial institution learns of information indicating that a particular individual may be a senior foreign political figure, a member of a senior foreign political figure's immediate family, or a close associate of a senior foreign political figure, it should exercise reasonable diligence in seeking to determine whether the individual is, in fact, a Covered Person. We recognize that, in some instances, it is not possible even through the exercise of reasonable diligence to determine whether a particular individual is a Covered Person. C. Account Establishment and Maintenance Procedures For Covered Persons In conjunction with financial institutions' policies, practices and procedures that are in place to enable financial institutions to comply with applicable laws and regulations, financial institutions are encouraged to employ the following practices when establishing and maintaining a business relationship with a Covered Person: Ascertain the Identity of the Account Holder and the Account's Beneficial Owner If, in the course of normal account opening, maintenance or compliance procedures with regard to private banking or other applicable accounts, a financial institution learns of information indicating that the beneficial owner of the account may be a Covered Person, the institution should undertake reasonable efforts to determine whether, in fact, a Covered Person holds or will hold a beneficial interest in the account. If, after making a reasonable effort to make this determination, substantial doubt persists as to whether a Covered Person holds a beneficial interest in the account, the financial institution may wish not to open the account if the institution is unable to determine the capacity in which, and on whose behalf, the proposed account-holder is acting. If a financial institution is requested to open an account for a Covered Person who comes from a "secrecy jurisdiction," the financial institution should require the Covered Person to provide the information that the institution typically collects to identify the client and his/her source of funds or wealth at the outset of the relationship and to waive any secrecy protections provided by local law so that the institution is able to obtain the information that the institution typically collects when opening an account for a United States resident. For the purposes of this Guidance, a secrecy jurisdiction is a country or territory that, among other things, does not participate in international counter-money laundering information sharing arrangements or, either by law or practice, permits account holders to forbid financial institutions from cooperating with international efforts to obtain account information as part of an official investigation. Each financial institution should undertake reasonable efforts to determine whether a legitimate reason exists for any request by a Covered Person to associate any form of secrecy with an account, such as titling the account in the name of another person (which could include a family member), personal investment company, trust, shell corporation or other such entity. Obtain Adequate Documentation Regarding the Covered Person Concurrent with establishing a business relationship with a Covered Person, the financial institution should obtain from the Person (or others working on his or her behalf ) documentation adequate to identify the Covered Person. Concurrent with establishing a business relationship with a Covered Person, the financial institution should take reasonable steps to assess the Covered Person's business reputation. Understand the Covered Person's Anticipated Account Activity Concurrent with establishing an account for a Covered Person, the financial institution should document the purpose for opening the account and the anticipated account activity. The institution should take reasonable steps to determine whether the Covered Person has any legitimate business or investment activity in the United States that would make having an account in the United States a natural occurrence. Determine the Covered Person's Source of Wealth and Funds Each financial institution asked to establish an account for a Covered Person should undertake reasonable efforts to determine the source of the Covered Person's wealth, including the economic activities that generated the Covered Person's wealth and the source of the particular funds involved in establishing the relationship. Among other things, the institution should take reasonable steps to determine the official salary and compensation of the Covered Persons as well as the individual's known legitimate sources of wealth apart from his or her official position. Apply Additional Oversight to the Covered Person's Account The decision to accept or reject establishing an account for a Covered Person should directly involve a more senior level of management than is typically involved in decisions regarding account opening. All material decisions taken in the course of establishing an account for a Covered Person should be recorded. An institution that has determined, in the course of its normal account opening, maintenance or compliance procedures, that it has established a business relationship with a Covered Person should undertake an annual review (or more frequently as events dictate) of each such Covered Person's account to determine whether to continue doing that business, including consideration of pertinent account activity and documentation. D. Questionable or Suspicious Activities That Often Will Warrant Enhanced Scrutiny of Transactions Involving Covered Persons When conducting transactions for or on behalf of Covered Persons, financial institutions should be alert to features of transactions that are indicative of transactions that may involve the proceeds of foreign official corruption. The following non-exhaustive list of potentially questionable or suspicious activities is designed to illustrate the sort of transactions involving Covered Persons that often will warrant enhanced scrutiny, but does not replace, supersede or supplant financial institutions' legal obligations regarding potentially suspicious transactions generally. The list should be evaluated by each financial institution along with other information the institution may have concerning the Covered Person, the nature of the transaction itself, and other parties involved in the transaction, in evaluating a particular transaction. The occurrence of one or more of the items on the list in a transaction involving a Covered Person often will warrant some form of enhanced scrutiny of the transaction, but does not necessarily mean, in itself, that a transaction is suspicious. Institutions should pay particular attention to: A request by a Covered Person to establish a relationship with, or route a transaction through, a financial institution that is unaccustomed to doing business with foreign persons and that has not sought out business of that type; A request by a Covered Person to associate any form of secrecy with a transaction, such as booking the transaction in the name of another person or a business entity whose beneficial owner is not disclosed or readily apparent; The routing of transactions involving a Covered Person into or through a secrecy jurisdiction or through jurisdictions or financial institutions that have inadequate customer identification practices and/or allow third parties to carry out transactions on behalf of others without identifying themselves to the institution; The routing of transactions involving a Covered Person through several jurisdictions and/or financial institutions prior to or following entry into an institution in the United States without any apparent purpose other than to disguise the nature, source, ownership or control of the funds; The use by a Covered Person of accounts at a nation's central bank or other government-owned bank, or of government accounts, as the source of funds in a transaction; The rapid increase or decrease in the funds or asset value in an account of a Covered Person that is not attributable to fluctuations in the market value of investment instruments held in the account; Frequent or excessive use of funds transfers or wire transfers either in or out of an account of a Covered Person; Wire transfers to or for the benefit of a Covered Person where the beneficial owner or originator information is not provided with the wire transfer, when inclusion of such information would be expected; Large currency or bearer instrument transactions either in or out of an account of a Covered Person; The deposit or withdrawal from a Covered Person's account of multiple monetary instruments just below the reporting threshold on or around the same day, particularly if the instruments are sequentially numbered; High-value deposits or withdrawals, particularly irregular ones, not commensurate with the type of account or what is known and documented regarding the legitimate wealth or business of the Covered Person; A pattern that after a deposit or wire transfer is received by a Covered Person's account, the funds are shortly thereafter wired in the same amount to another financial institution, especially if the transfer is to an account at an offshore financial institution or one in a "secrecy jurisdiction;" The frequent minimal balance or zeroing out of an account of a Covered Person for purposes other than maximizing the value of the funds held in the account (e.g., by placing the funds in an overnight investment and having the funds then return to the account); and An inquiry by or on behalf of a Covered Person regarding exceptions to the reporting requirements of the Bank Secrecy Act (e.g., Currency Transaction Reports and Suspicious Activity Reports) or other rules requiring the reporting of suspicious transactions. E. Sources of Information In addition to a financial institution's existing information sources, several sources of information exist that may assist financial institutions in determining whether to conduct business with an individual who may be a Covered Person, and in determining whether such a Person may be engaging in transactions that may involve proceeds derived from official corruption. While there is no requirement to do so, a financial institution may wish to consult some or all of the following sources: The annual National Money Laundering Strategy issued jointly by the Department of the Treasury and the Department of Justice (www.treas.gov/press/releases/reports.htm); Advisories and other publications issued by the Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury (www.treas.gov/fincen); Evaluations of particular nations in the International Narcotics Control Strategy Report, prepared annually by the State Department (http://www.state.gov/www/global/narcotics_law/narcotics.html); The World Factbook published annually by the Central Intelligence Agency (www.cia.gov/cia/publications/factbook/index.html); The Department of State's annual Country Reports on Human Rights Practices (www.state.gov/www/global/human_rights/drl_reports.html); Reports issued by the General Accounting Office on international money laundering issues (www.gao.gov); Publications and other materials posted on web-sites of United States Government Departments and Agencies (www.firstgov.gov); Reports issued by Congressional Committees of hearings and investigations concerning international money laundering (www.house.gov; www.senate.gov); Reports of the Financial Action Task Force (FATF) on Money Laundering concerning countries and territories that are non-cooperative in the international effort to combat money laundering, as well as the FATF's annual reports and FATF's annual "Report on Money Laundering Typologies" (www.oecd.org/fatf); Reports on corruption and money laundering issued by International Financial Institutions (e.g., the World Bank (www.worldbank.org), the International Monetary Fund (www.imf.org)); Reports on crime and corruption prepared by various components of the United Nations and other multinational institutions and organizations, such as the Organization for Economic Development and Cooperation (www.oecd.org), the Organization of American States (www.oas.org), the Council of Europe (www.coe.fr), the G-7 and the G-8; Reports prepared by non-government organizations that identify corruption, fraud and abuse, such as the annual Corruption Perceptions Index of Transparency International (www.transparency.de); Information published on the World Wide Web by foreign countries; and Publicly available sources such as newspapers, magazines and other articles from information service providers available in hard-copy or from on-line services. In addition to these published sources of information, if a financial institution is unsure whether an individual holds a position within the government of a particular country, it is encouraged to contact the United States Department of State at www.state.gov, which may be able to provide that information.

JERSEY PROBES CRIMINAL ASSETS

Date: January 14, 2001 Source: The Financial Timesm Jersey has asked financial institutions operating on the island to search their records to ensure they hold no assets on behalf of public figures involved in crime. The Jersey Financial Services Commission issued the edict in response to concerns about the island's role in handling money allegedly plundered from Nigeria by former president Sani Abacha and his family. Richard Pratt, the commission's director-general, says he wants to avoid further embarrassing revelations about assets acquired as a result of the abuse of public position. A United Kingdom Financial Services Authority probe last year found that a bank in Jersey processed $126 million of the $514 million of Nigerian funds that flowed out of Switzerland. The FSA said $123 million of Nigerian funds flowed into Switzerland through the UK and Channel Islands, with $83 million coming from UK banks and $40 million from financial institutions in Jersey. The FSC's call comes in the latest edition of Enforcement Update, a periodical regulatory newsletter sent to financial institutions. It says institutions should "consider General Abacha and possible associates" in their review, but adds they should scrutinize all files relating to public figures. Pratt says the FSC is investigating a number of institutions over their roles in the Abacha affair.

MADEIRA LAWS KEEP ZERO TAX STATUS IN FREE TRADE ZONE

Date: January 15, 2001 Source: tax-news.com New laws have been approved in Madeira that will maintain a low or zero tax status for companies operating in the jurisdiction's Free Trade Zone. All companies licensed before December 31, 2000 will remain tax-exempt until December 31, 2011. Companies licensed in 2001 and 2002 must pay a corporation tax rate of 1% of profits. For those licensed between 2003 and 2004, a rate of 2% will be levied on profits, rising to a 3% rate for companies granted licenses between 2005 and 2006. All licenses will be operational until 2011 when the tax rates will be revised. Financial institutions must be approved by the Bank of Portugal and licensed to operate within the Free Trade Zone. Licenses issued in 2001 and 2002 will attract a tax rate of 7.5% of profits; licenses granted between 2003 and 2004 will attract a 10% tax; while a 12.5% tax will apply to licenses granted between 2005 and 2006. The rates will also apply to established credit institutions and other financial firms licensed before January 1, 2001 and will continue until December 31, 2011. All other tax exemptions will remain in force until December 31, 2011.

ELECTRONIC SIGNATURES MAY BE RECOGNISED BY SWISS LAW

Date: January 17, 2001 Source: swissinfo.org Electronic signatures could soon have the same legal status in Switzerland as the traditional handwritten variety. The Swiss Government has given the go-ahead for consultations to begin on legislation, which would recognize the validity of computer-generated signatures. The two-month consultation period is the first step in introducing a new law. Both houses of parliament also have to debate the issue. The new legislation would mean electronically produced contracts would no longer have to have signatures added on later. Computer-generated signatures would make the documents legally binding. The Justice Ministry says the current legislation needs to be changed to reflect the growing shift towards e-commerce. The Ministry says safeguards can be put in place to ensure documents are not altered after they have been electronically signed. The new legislation would also apply to purchases made via the Internet. For customer protection, written signatures will still be necessary in certain cases, the Ministry says.

ANTIGUA'S TURNOVER TAX NOW IN FORCE

Date: January 18, 2001 Source: Tax-news.com A controversial new turnover tax in Antigua and Barbuda aimed to boost the country's economy is now in force. The country's Inland Revenue Department is issuing notices to businesses confirming that they must now pay a 2% tax on gross income. No tax is payable on the first $4,166 of gross income each month, so the amount is deducted from the gross income for the month before the 2% is calculated. Business owners are also required to submit a monthly summary of their gross income and to keep all records necessary to provide their daily income. There was a lot of controversy in the months leading up to the new tax requirement. At a chamber of commerce meeting last August, after the government announced the proposal, members of the private sector expressed their concern and Clarvis Joseph, president of the Antigua and Barbuda Chamber of Commerce and Industry, said that more taxes on local businesses could be considered "immoral" and would produce a lack of private sector confidence in the government. The ABCCI also led a three-day shutdown of the country's business sector during the independence celebrations last year to protest government's refusal to repeal entirely the Income Tax (Amendment) Act 2000 and the related Inland Revenue Act.

US RATIFIES NEW TAX TREATY WITH LUXEMBOURG

Date: January 5, 2001 Source: Tax-news.com The United States Treasury Department says instruments of ratification were exchanged in Washington, D.C. on December 20, 2000 with respect to a new income tax treaty with Luxembourg. The treaty, which replaces an income tax treaty between the US and Luxembourg that entered into force in 1963, will have effect, with respect to taxes withheld at source, for amounts paid or credited on or after January 1, 2001 and, for other taxes, with respect to taxable years beginning on or after January 1, 2001. The treaty is an important development for European Union companies wanting to hold US operations through an intermediate holding company eligible for tax-favored treatment. In the past, The Netherlands has been the typical focus for such intermediary companies. However, the US-Netherlands Tax Treaty made it necessary to get a ruling from the US tax authorities for the intermediate Netherlands company to qualify for tax treaty benefits. There is no such requirement under the new Luxembourg Tax Treaty, as long as the intermediate Luxembourg holding company is owned by a resident of an EU country with a tax treaty with the US, and certain other standards are satisfied.

US TEAM IN PANAMA TO DISCUSS ANTI-MONEY LAUNDERING MEASURES

Date: January 5, 2001 Source: Tax-news.com A team of experts from the United States completed a three-day visit to Panama this week to discuss the implementation of the country's new anti-money laundering measures. Richard Boucher, a US State Department spokesperson, says the talks were "technical" and their purpose was to "better understand Panama's recent anti-money laundering reforms and offer advice on implementing these reforms." Boucher says the visit to Panama had no connection with the work of the Financial Action Task Force, which blacklisted the jurisdiction last year as a money laundering hotspot (although has since recognized its efforts to improve its anti-money laundering controls). The main US concern is that Panama's new laws are implemented properly and comprehensively. Panama amended its anti-money laundering laws in response to specific complaints from the FATF and the Panamanian Government acknowledges the FATF's recognition that its money laundering laws have been expanded, but remains up in arms at the organization's decision to keep Panama on the blacklist while it sees how the changes actually work, saying it amounts to the unfair addition of an extra condition that wasn't part of the original demands for change.

2000: A RECORD YEAR FOR IBCS IN BARBADOS

Date: January 6, 2001 Source: The Barbados Daily Nation Despite international scrutiny of its offshore financial sector, a record number of international business companies were registered in The Barbados last year. About 456 IBCs were registered in Barbados last year, compared with 326 in 1999, and eclipsing the previous record of 441 in 1998, according to figures released by the Ministry of International Business. The only area showing a decline was foreign sales corporations, but Reginald Farley, minister of international business, appeared satisfied with the 118 corporations formed (down from 249 the year before) amid a challenge to the FSC regime before the World Trade Organization. FSCs, under which United States companies can reduce American corporate taxes by creating export subsidies in offshore centers, are considered by the WTO to amount to an illegal trade subsidy.

BAHAMAS OFFICIALS BANKING ON NEW LAW

Date: January 8, 2001 Source: The Miami Herald Officials in The Bahamas believe new anti-money laundering laws passed last week will encourage the US government to approve the Caribbean nation's request to protect non-American offshore banking clients' identities without paying a penalty. The Bahamas is waiting for approval for Qualified Jurisdiction status with the US Internal Revenue Service, which would allow approved banks to protect the identities of non-American clients who have US investments. The IRS can penalize banks in nonqualified jurisdictions that withhold that information by putting a hold on 30% of their clients' earnings from US investments.

Parties Agree in Tax Haven Debate

Tuesday, January 09, 2001 9:23 PM EST ST. MICHAEL, Barbados (AP) -- Leaders of a meeting between wealthy countries seeking to halt tax evasion and small countries with lucrative offshore banking industries said Tuesday that they had made headway toward resolving their differences. The gathering of officials from about 40 countries was intended to foster discussion about banking secrecy laws and other tax practices deemed ``harmful'' by the Paris-based Organization for Economic Cooperation and Development. The wealthier nations want to recover billions of dollars lost to offshore tax havens and are trying to convince the smaller countries to give up the banking secrecy, which has buoyed their fragile economies. ``There is much common ground between participants on the substantive issues, although there remain some divergences on process,'' said Prime Minister Owen Arthur of Barbados, the meeting's host. Arthur said the two sides found common ground on the broad principles of ``transparency, non-discrimination, and effective exchange of information.'' He said delegates agreed to the creation of a working group -- of both OECD and non-OECD states -- to help turn the principles into commitments. Officials with the OECD -- whose members include the wealthiest industrialized countries -- also said they were pleased with the outcome. The OECD's 30 member nations have set international standards by which they want all nations to abide, and the group has urged reform for no-tax and low-tax regimes. Despite talk of a common perspective, however, many officials from small countries and territories said much remained unsettled. ``There's a lot of disagreement,'' said Finance Minister Victor Banks of the British Caribbean territory of Anguilla. He said rich countries had taken a ``chauvinistic approach,'' judging small countries without consultation. The OECD released a blacklist of 35 alleged tax havens in July, including 15 Caribbean territories and nations. The organization urged change in those jurisdictions, or warned there could be sanctions. The OECD did not rule out the possibility of such moves, but the meeting's leaders expressed optimism the measures wouldn't be necessary. The 15-nation Caribbean Community trade bloc, known as CARICOM, had raised the possibility of taking the dispute before the World Trade Organization. But CARICOM officials declined to discuss that possibility after the meeting, saying they were pleased with the conclusion. However, a CARICOM statement released earlier Tuesday said that because the offshore banking industry is interconnected with the rest of the region's economy, ``any attempt to restrict offshore operations will likely have negative multiplier effects throughout the entire economy, threatening economic survival and creating social tensions.'' Representatives of seven small Pacific island states on the tax haven blacklist also said any decline in their offshore banking sector could lead to major losses. Last year, an OECD-related organization called the Financial Action Task Force issued a list of 15 countries considered uncooperative in fighting money laundering. Five of the jurisdictions are in the Caribbean -- the Bahamas, the Cayman Islands, Dominica, St. Kitts and Nevis, and St. Vincent and the Grenadines. Many Caribbean leaders, although disturbed by the outside judgments, are anxious to avoid the stigma of involvement in money laundering, and a few have changed laws to open banks to foreign investigators.

US Income Tax Agreement With Luxembourg Now In Effect

The implementation of the treaty is a very important development for European Union companies that want to hold US operations through an intermediate holding company eligible for tax- favoured treatment. In the past, The Netherlands has been the typical focus for such intermediary companies. However, the recent (1992) US-Netherlands Tax Treaty made it necessary to get a ruling from the US tax authorities for the intermediate Netherlands company to qualify for tax treaty benefits. This awkward, time-consuming, and expensive process has made The Netherlands less attractive. Under the new Luxembourg Tax Treaty there is no such requirement, as long as the intermediate Luxembourg holding company is owned by a resident of an EU country with a tax treaty with the United States, and certain other standards are satisfied.

US Administration Labels Cyprus A 'Centre Of Money Laundering And Drug Trafficking'

Reports surfacing in Cyprus over the holiday period say that a US Administration report has described Cyprus as 'a centre of money laundering and gun trafficking'. Cyprus Government spokesman Michalis Papapetrou dismissed the allegations, saying that the island had repeatedly passed inspections of its banking regime, but said that the government would not give its official response to the report after it had contacted the US government for a full explanation. Central Bank Governor Afxentis Afxentiou said that he had been in contact with the American Embassy in Nicosia to find out about the contents of the supposed report - but the Embassy did not have any information either.

SWISS BANKERS, EU DISCUSS TAX AND BANKING SECRECY

Date: December 18, 2000 Source: Tax-news.com A delegation from the Swiss Bankers Association (SBA) met in Brussels late last week for a two-day exchange of views with EU officials on subjects including European tax harmonization, the taxation of cross-border savings and banking secrecy. The 12-member delegation included members of the SBA's Executive Committee "International Financial Center Switzerland" and was headed by Dr. Urs Roth, the SBA's chief executive officer designate. The visit comes as Switzerland and the EU are due to begin negotiations on the taxation of cross-border savings. Dominating the news last week was the fact the EU now hopes to tax interest earned on foreign savings accounts, much to the consternation of the SBA. Dr. Roth has always stood firmly behind the idea that banking secrecy is non-negotiable. In addition, the SBA has stressed that Switzerland should not be singled out, and that the same rules should be applied to all countries including the US, Liechtenstein, and Monaco.

BANK OF NEVIS TO GO PUBLIC ON ECSE

Date: December 15, 2000 Source: The Caribbean News Agency The Bank of Nevis, will go public on the recently-formed Eastern Caribbean Securities Exchange (ECSE), which is expected to start trading in late March. Reginald Kawaja, chairman of the bank's board of directors, urged other business to get listed on the ECSE, which is expected to start online trading by the end of the first quarter of 2001. By then, all the equipment would have been installed and at least one other signatory added to the Securities Regulatory Commission Agreement. The National Bank in St. Lucia is the only other entity known to have publicly said it would be issuing shares on the ECSE. At least five signatories are required but at the recent Summit of Heads of Government of the Organization of Eastern Caribbean States (OECS) in Montserrat, only four - Antigua and Barbuda, St. Kitts, St. Lucia and Grenada -- signed the act. Either Dominica or St. Vincent and the Grenadines will now have to sign to increase the number. The ECSE has received commitments from 13 of the 28 public companies that they would be trading their shares on the sub-regional network and 10 intermediaries have signaled their intention to be licensed as stockbrokers in their individual territories.

Bahamas Prime Minister Confirms Compliance With OECD, by Robert Lee,

Tax-news.com, London 27th November 2000 "...Mr Ingraham also confirmed that the Bahamas hopes to conclude a Tax Information Exchange Agreement with the US, a document the latter country has been seeking for almost twenty years. He said the terms of the agreement would provide for reciprocity of assistance to the Bahamas and eligibility for the Bahamas' tourism industry to receive convention tax deduction benefits with respect to US corporate clients holding business meetings in Bahamian resorts."

IRS CRACKS DOWN ON TAX CHEATERS CONCEALING INCOME THROUGH TRUSTS

By Curt Anderson Dozens of people have received stiff prison sentences and fines under an Internal Revenue Service crackdown on tax evasion schemes involving income hidden through trusts that often use offshore bank accounts. A Michigan dentist convicted of failing to report $1.5 million in taxable income got a 27-month prison sentence in September and must take out a full-page newspaper ad explaining his wrongdoing. In May of last year, a California accountant was sentenced to 87 months in prison for concocting bogus trusts that cost the government $2.5 million in tax money. The IRS Criminal Investigation Division is working on 127 abusive trust cases, which could prove to be the tip of the iceberg, IRS Commissioner Charles Rossotti said. "There's certainly plenty of indication that there are significant transactions taking place where promoters are telling people they can put money into trusts and move the trusts offshore," Rossotti said. "These schemes are false promises. My philosophy is, if it sounds too good to be true, it probably is." While tax cheating is nothing new, IRS officials say these trust schemes have spread rapidly since 1998. Promoters have created about 300 Web sites, taken out dozens of magazine ads and held seminars coast-to-coast to sell trust packages for as much as $70,000 to well-heeled people. "When one fraudster does something that works, word of mouth spreads," said Mark Matthews, chief of criminal investigation for the IRS. "It just took off." Many types of trusts are legal for charities, estate planning and holding assets for children or others. The tax code allows a trust's taxable income to be reduced when money is distributed to named beneficiaries, but otherwise the income is subject to taxes. In these fraud schemes, there are several layers of trusts. Fake expenses are claimed to reduce the trust's income at each layer and the remaining income is distributed; afterward, the process is repeated. One case involved deductions for lawn care, house cleaning and depreciation of a personal home. Frequently, a foreign bank account is opened in a tax haven country where the money is finally deposited. The taxpayer gets a debit card, a credit card or a loan and spends the trust scheme's money without paying any taxes. In one Florida case, a trust promoter's clients used money from their Bahamas accounts to buy jewelry, luxury cars, a 46-foot boat and "an exotic parrot," according to court records cited by the IRS. Criminal convictions carry a possible 5-year prison sentence, fines up to $250,000 and tax penalties.

Imperial Consolidated

Imperial Consolidated has been implicated in high yield investment programs and has run into regulatory problems in several jurisdictions over the last two years. Bahamas-based HINT MasterCard credit card program that was offered by the Imperial Consolidated Group has been terminated as an agent by the issuing bank because of concerns about the credibility of Imperial Consolidated. The issuing bank was Leadenhall Bank & Trust, and the data processor, Axxess International, which are both based in the Bahamas.

Bahamas PM: Anti-Laundering Law Will Mean Revenue Losses

Dow Jones Newswires NASSAU, Bahamas (AP)--The Bahamas expects its proposed legislation to ban anonymous ownership of offshore international business companies - a move to stop money laundering and other crime - will cost it a portion of its $20 million yearly revenue from the firms. "There is no question in my mind that the amount of revenue which the government receives from IBCs will be reduced," Prime Minister Hubert Ingraham said Wednesday in parliament. "This is the price that we are going to be required to pay." The parliament is considering a new law that would ban anonymous ownership of the companies, a move expected to drive some of the more secretive firms to countries with looser laws. The Bahamas has nearly 17,000 registered IBCs. Although the agents who set up the companies will have to name the owners of the firms, that information won't have to be made public under the revised legislation. Existing IBCs would have three months to comply if the bill becomes law. The Bahamas has been pressing tougher offshore financial legislation through parliament after the Caribbean nation was put on international blacklists of money laundering and tax havens released in June by the Paris-based Organization for Economic Development and Cooperation and its Financial Action Task Force.

U.S. Clears New Plan to Protect Client Privacy in Cayman Islands

GEORGETOWN, Cayman Islands -- The U.S. government will allow Cayman Islands banks to become intermediaries for clients who hold U.S. securities so they can avoid penalties under new tax laws, the Cayman Islands Bankers Association said. The U.S. Internal Revenue Service will enact new rules in January that require international offshore banks to report details of accounts and companies for whom they are holding U.S. securities, or automatically face a 30% withholding tax. To avoid the penalties, banks can apply to become "qualified intermediaries" if they are based in approved jurisdictions. The IRS recently approved the British Caribbean territory based on a review of its "know-your-customer" regulations, the Cayman Islands association said in a statement Monday. The Cayman Islands' offshore banking sector, the world's fifth largest, thrives on its secrecy laws. The qualified intermediaries agreement makes allowances for those countries that have secrecy laws as long as they follow guidelines. In the region, Bermuda and Barbados also have been approved. The Bahamas has applied for the status, but it hasn't yet been approved. The Cayman Islands and the Bahamas were on an international blacklist of 15 alleged money laundering havens released in June by the Paris-based Financial Action Task Force. One-third of the countries on the list were in the Caribbean, including St. Kitts and Nevis, St. Vincent and the Grenadines and Dominica.

Bahamas' PM Complains About Bank Rules Imposed By Rich

Dow Jones Newswires NASSAU, Bahamas (AP)--Prime Minister Hubert Ingraham said the world's richest countries are trying to force their rules on the Bahamas' offshore banking industry "under the guise of globalization." "Nowadays, we are compelled to come to terms with a new economic reality -one in which major economic world powers are calling for and imposing such changes as they determine appropriate," Ingraham told reporters in Nassau on Tuesday. "They call it 'globalization,' and we are expected to adapt and/or adopt the new rules whether or not they reflect our interests or needs." In June, the Paris-based Financial Action Task Force, which was set up by the Group of Seven most industrialized countries, put the Bahamas on a blacklist of 15 countries deemed money laundering havens. A few weeks later, the Organization for Economic Cooperation and Development, affiliated with the task force, put the Bahamas on a list of countries with "harmful tax practices." Since then, Ingraham's administration has been pressing lawmakers to pass a package of legislation to strengthen the Bahamas' anti-money laundering laws. Ingraham compared the pressure to the U.S.'s efforts to end the Caribbean's preferential trade agreements with the European Union, on which the former colonies' small but crucial banana industries survive. The World Trade Organization has twice ruled the arrangement is a breach of free trade rules.

Money laundering hits close to home

David Baines Vancouver Sun A U.S. expert on illicit offshore business activity didn't need to look far for a subject to illustrate his presentation at an international money-laundering conference Monday. Jack Blum, a lawyer from Washington D.C., said former Vancouver businessman Jerome Schneider has made his living establishing phony offshore banks and trusts that are used for illicit purposes. He said Schneider even helped the Cook Islands fashion legislation that provides for the creation of "asset protection trusts," which are virtually impervious to outside attack. If, for example, a U.S. court finds a trust registered in the Cook Islands has committed civil fraud and orders disgorgement of its ill-gotten gains, the trustees may dissolve the trust and move the assets to some other offshore jurisdiction. "It's called a walking trust," said Blum. "If the cops come, it disappears." Blum is one of the featured speakers at the international money-laundering conference at the Westin Bayshore. The four-day conference is being attended by more than 500 top-level bankers, senior law enforcement officers, government finance officials, justice department prosecutors, forensic accountants and information technology personnel. Blum served as counsel for the U.S. senate foreign relations committee during the Iran contra scandal investigation, and has been frequently retained by the U.S. Internal Revenue Service to help prosecute offshore tax evasion cases. He encountered Schneider three years ago, when ABC-TV's 20/20 program broadcast an expose on him. Schneider was caught on a hidden camera telling prospective clients how they could use offshore companies to legitimately avoid taxes, a claim Blum emphatically refuted. By that time, Schneider was living in Vancouver and running Premier Corporate Services Ltd. with Langley businessman Richard Bullock. Among other questionable activities, Schneider and Bullock helped former Seventh Day Adventist pastor Gary Stanhiser establish and operate Windsor International Bank, a phony bank registered in the South Pacific island of Nauru. Stanhiser used the bank as part of stock scheme in which he duped Vancouver-area investors out of an estimated $13 million. He was subsequently banned from the B.C. stock market. A receptionist said Monday that Schneider moved to San Francisco "a matter of weeks ago," but still maintains his office on Hornby Street. Blum said the sort of business Schneider promulgates causes immense damage.

FATF Lifts Warning On Austrian Anonymous Savings Passbooks

In a statement, the FATF said it 'welcomes the new Austrian legislation....which requires all new savings passbook holders to be identified, as well as any holders of existing passbooks that make a deposit to the passbook.' It added that other significant anti-money laundering requirements also became effective on 1 November: 'any withdrawal from a passbook where the holder has been previously identified and which has a balance of ATS200,000 or more can only be made by the identified holder, and payments over ATS200,000 into a saving deposit account require the depositor to be identified.' The FATF said that Austria has also taken steps to strengthen its financial system by requiring credit institutions to apply increased diligence to (i) transactions that split a large deposit into smaller deposits; and (ii) withdrawals from anonymous savings passbooks prior to 30 June 2002 (by which date existing passbook accounts will have been phased out). The FATF has stated that it will continue to closely follow developments in Austria regarding the implementation of these measures.

Seychelles

The Seychelles are grateful that the Financial Action Task Force recently changed its recommendation to scrutinize all business transactions between financial institutions and the tiny republic. Although Seychelles wasn't on the FATF list of money launderers last June, the government was given a severe warning about its practices. The OECD recently announced "significant progress," according to Tax Analysts' Bob Goulder, with its own campaign to combat harmful tax competition. According to Goulder's article, 23 of the 35 jurisdictions named in the OECD's June report on harmful tax competition have approached the OECD with plans to cooperate in eliminating unfair or illegal tax practices.

Holders who failed to pay taxes face stiff charges, fines

October 31, 2000, Miami Herald BY GREGG FIELDS gfields@herald.com A Miami judge on Monday authorized the Internal Revenue Service to examine the banking records of tens of thousands of Americans with offshore accounts in the Caribbean. If the IRS proves that prosperous Americans used offshore accounts to avoid taxes, the court ruling ultimately could lead to criminal charges and fines reaching into the billions of dollars. In his ruling, U.S. District Judge Adalberto Jordan ordered MasterCard and American Express to turn over records relating to their account holders in Antigua, the Bahamas and the Caymans -- three locales whose secretive banking laws have made them a popular spot for Americans to register assets and avoid U.S. taxation. The IRS brought the case in Miami because the Caribbean credit card accounts are cleared through Miami subsidiaries. Jordan, in siding with the IRS, found ``a reasonable basis exists for believing that such individuals may fail or may have failed to comply with provisions of the internal revenue laws.'' Although the IRS doesn't have the records yet, the judge's ruling could help lift the veil on the shadowy world of offshore tax havens. ``As of today, we are now speaking with the IRS to get a better idea of what exactly they're looking for,'' said Judy Tenzer, a spokesman for American Express. MasterCard, in a corporate statement, said it has ``a long history of cooperating with government agencies.'' The company added: ``We will review the summons when served and will evaluate whether we have, and are able to provide, any of the requested information.'' Caribbean tax dodges have long been an open secret among U.S. regulators -- they are widely advertised, and accounts can be opened on the Internet. But authorities could do little about it, because the activity took place beyond America's borders. Last June, however, the Organization for Economic Cooperation and Development took aim at tax havens -- predominantly in the Caribbean -- and blasted them for their secretiveness. The OECD called for an international crackdown on their practices. Meanwhile, Congress has threatened to blacklist tax havens, potentially harming their vital economic links with the United States. Although the criticism has infuriated some Caribbean leaders, a number of governments have pledged to change. Most recently, the British Virgin Islands and the Bahamas have pledged to either loosen secrecy laws or crack down on money laundering. The international criticism, coupled with the power of today's computers and the paper trail of credit card records, may mean that a seemingly foolproof way to shelter assets is rapidly coming undone. ``It's a huge deal,'' said Jay Adkisson, a California lawyer with expertise in offshore banking. ``I would estimate the IRS would collect $3 billion to $10 billion,'' from tens of thousands of accountholders. ``It's an enormous pool.'' Miami, of course, has been linked to questionable banking before -- particularly the notorious money laundering scandals of the 1980s and 1990s. But that criminal activity was largely linked to drug smugglers and other nefarious criminal elements. By contrast, the offshore banking accounts targeted by the IRS today are largely a tool of middle- and upper-middle-class wage earners, whose goal is sheltering income from taxation. Experts suspect that the demand has greatly increased in the last few years, as investors reaped large profits on stock portfolios and a tight labor market boosted incomes for the professional classes. Americans are free to open offshore banking accounts, but they must report them to the IRS and pay the appropriate taxes on the income. However, many people don't. ``There are many, many, many offshore accounts that aren't reported,'' said Jack Blum, a Washington tax attorney and specialist in international banking. ``This is a law that's breached more than it's honored.'' The credit card records could prove crucial because of the circuitous manner in which offshore tax dodges are structured. Typically, the person opens an account in a tax haven, registering the deposits in an offshore bank. Then, to maintain access to the money, the offshore bank provides the client with a credit card that draws on the account. In many cases, the bank reinvests the assets back in the United States -- in effect, allowing the person to have the safety of America's banking system without the burden of taxation. There are hundreds of offshore banks that provide such services. And the IRS has had to pursue them one at a time -- a painstakingly slow process. With Monday's ruling, ``their net is much wider,'' Adkisson said. ``This is a big dragnet for them.'' Computers should make sifting through tens of thousands of records relatively easy, he said. For instance, if U.S. cardholders are shown to have a history of making frequent purchases through an offshore bank, ``the computer will very quickly pare it down,'' Adkisson said.

Turkish Free Trade Zones

Although the OECD regards activities in Turkish Free Trade Zones to be harmful tax practices, the Turkish government plans to let Turkish companies operating in Turkey continue those activities. The free trade zones are areas that technically lie outside the customs line but are still within Turkey's political boundaries. All income realized in the zones, according to Mustafa Camlica, is exempted from taxation.

Bermuda Monetary Authority Hailed

10/27/00 - According to the Royal Gazette, Bermuda "has emerged from a tough examination of its financial controls with its reputation intact." The Bermuda Monetary Authority was hailed in the Report as "one of the most developed offshore regulators." KPMG had been commissioned by the British Foreign and Commonwealth Office to conduct a probe into the financial regulatory systems of its Caribbean Overseas Territories and Bermuda. The Report does make several suggestions on how the island can improve its regulatory practices relative to the Bermuda Stock Exchange and the insurance industry.

Health care directive/proxy

Foreign jurisdictions do not generally recognize the U.S. health care directive/proxy. It is a creature of state law and also generally only recognized in the state where drafted.

Black Listing Update

Following up on its annual blacklist against money-laundering activities, the Financial Action Task Force has announced that nearly half of the 15 listed jurisdictions "have taken significant steps to eliminate tax evasion and other financial crimes," according to Tax Analysts reporter Robert Goulder. Apparently, five more jurisdictions have begun making changes to their law in order to avoid countermeasures for noncooperation with the task force, leaving only Lebanon, Nauru, and Niue uncooperative. [attribution: Worldwide Tax Daily]

Harris Organization Suspended

The suspension follows numerous complaints made by clients of The Harris Organization that they have been unable to redeem their investments and that they are ignored by the group when they complain. The CNV wants to hear from anyone who has a complaint against the group and has set aside a period of two months in which a complaint must be submitted. Marc M. Harris, who heads The Harris Organization, has been notified of the decision and has announced his intention to appeal it, according to La Prensa. [attribution: www.offshorebusiness.com ]

Tax havens seek WTO intervention

Caribbean countries that provide offshore financial services are to ask the World Trade Organisation to intervene in a dispute which has brought a threat of sanctions from the Organisation for Economic Co-operation and Development. The OECD is threatening sanctions of alleged lax regulation of financial services, and because of tax policies. Several offshore centres are said by industrialised countries to be uncooperative in combating financial crimes such as money laundering, while the US, Canada and Japan have warned their financial institutions to be wary of doing business with the Caribbean offshore jurisdictions.

EU Rule Makes Lawyers Inform On Clients

Lawyers, financial advisers and even casino operators will be obliged to inform on clients they suspect are engaged in money laundering, under law changes given broad assent by European Union finance ministers on Friday. The reform to a 1991 directive on money laundering is bound to cause concern among professional advisers, particularly lawyers jealous of confidential relationships with clients. The tentative deal, a "political agreement" on the contentious issues of the directive change, also extends the coverage of the legislation. Until now it has extended only to financial institutions and obliged them to report on money movements they believed derived from drug trafficking. Friday's agreement applies to all transactions.

Critic Calls Proposed US Rules `Time Bomb' For Bahamas

Dow Jones Newswires NASSAU, Bahamas (AP)--A British opposition legislator who also serves as a top official in a Bahamas investment firm slammed proposed U.S. tax regulations that seek to keep Americans from skirting taxes on U.S. securities administered overseas. Howard Flight, the opposition Conservative Party's economic secretary, said Tuesday the U.S. policy represented a "potentially a huge bombshell which could end up discouraging overseas portfolio investment." The new rules, to take effect in January, require international offshore banks to report details of accounts and companies for whom they are holding U.S. securities - or automatically face a 30% withholding tax. Currently, the Bahamas' offshore financial industry thrives on its secrecy laws. The Bahamas could avoid giving out information about non-American clients if the U.S. Internal Revenue Service gives the Caribbean nation status as a "qualified intermediary." The Bahamas has applied for this status, currently undergoing U.S. review, despite its inclusion on a 15-country blacklist for alleged noncooperation in money laundering investigations. The Paris-based Financial Action Task Force released the black-list earlier this year. According to Flight, who serves as a co-chairman of investment firm Investec Asset Management, the paucity of publicity given to the new regulations may add to their negative impact on overseas investment. "If people who don't know about it...suddenly find 30% of their U.S. investments sequestered on a sale, they would never want to invest in that country again," he said.

US House Measure To Fight Money Laundering Probably Dead

Dow Jones Newswires WASHINGTON (AP)--Bipartisan legislation designed to fight money laundering appears doomed in Congress, while the United States and its economic allies complain that Russia, Israel and 13 other countries are failing to crack down on such illegal commerce. Following heavy lobbying against the bill by bankers, especially from Texas, the Senate Banking Committee chairman has pronounced the measure dead. "I think the clock's run out on that," Sen. Phil Gramm, R-Texas, said recently in response to a question about the bill's prospects. With Congress racing toward adjournment for the year and only a few work days remaining, the money-laundering legislation has not been scheduled for a vote in the House or Senate - despite overwhelming approval by the House Banking Committee in early June. "This is an important piece of legislation needed in the continued crackdown on illegal drug cartels and other international criminal syndicates," Rep. Jim Leach, R-Iowa, chairman of the House banking panel, said Monday. "Unfortunately, it has ... been the subject of ... quiet but effective interest-group opposition." The legislation, a result of cooperation between the Clinton administration and key Republican lawmakers, would allow the Treasury Department to ban some transactions between U.S. banks and offshore havens in an effort to combat laundering of dirty money. "I think it's too much power to give the secretary of the Treasury," Gramm said. As time was running out on Capitol Hill, U.S. representatives began meeting Monday in Madrid, Spain, with counterparts from the 29-nation task force that created the "blacklist" of 15 countries and territories deemed uncooperative in the fight against money laundering. The list was published in June, and followed in July by an advisory from the United States and other countries to their domestic banks, warning they could inadvertently make illegal transactions with the named countries and territories. And last week, European Union finance ministers agreed on rules strengthening anti-money-laundering regulations by requiring accountants and lawyers to report suspicious activities by their clients to authorities. U.S. officials are disappointed they don't have the new legislation in hand in time for the meeting of the task force, part of the Organization for Economic Cooperation and Development, which is expected to review progress by the 15 countries and territories. "Let me be clear: without the passage of this bill, the U.S. will have a much weaker hand when dealing with recalcitrant money-laundering havens," Deputy Treasury Secretary Stuart Eizenstat said in a recent speech to an international group. He noted that the legislation had been drafted earlier this year in consultations among the administration, lawmakers and the banking industry. "We're very disappointed that the legislation has not yet passed," Eizenstat said Monday. He declined further comment. Texas bankers fear the legislation could increase the regulatory and reporting burden on smaller banks, said Christopher Williston, president and chief executive officer of the Independent Bankers Association of Texas. John Byrne, senior counsel for the American Bankers Association, said the group supported the goal of the legislation but believed it isn't needed. "It could all be done under current law," he said. Public attention focused on money laundering after it was revealed last year that the Bank of New York, one of the nation's largest, had served as a conduit for an astonishing $7 billion in Russian money, some of it believed to be from criminal activities. The 15 countries and territories named by the international task force are the Bahamas, the Cayman Islands, the Cook Islands, Dominica, Israel, Lebanon, Liechtenstein, the Marshall Islands, Nauru, Niue, Panama, the Philippines, Russia, St. Kitts and Nevis, and St. Vincent and the Grenadines.

Tennessee man pleads guilty in $95 million scam

Thursday, August 24, 2000 Associated Press PENSACOLA — One of 11 defendants charged with bilking investors out of about $95 million in a worldwide pyramid scheme has pleaded guilty and faces up to 15 years in prison and $500,000 in fines. Benjamin David Gilliland, of Memphis, Tenn., entered his plea Tuesday to one count each of conspiracy to commit wire and securities fraud and conspiracy to commit money laundering. U.S. District Judge Lacey Collier set sentencing for Nov. 28. The maximum sentences are 5 years for fraud and 10 years for money laundering plus fines of $250,000 in each count. He also could be ordered to pay restitution. Gilliland admitted his role and implicated his co-defendants, said U.S. Attorney Michael Patterson. He said Gilliland also agreed to cooperate in the prosecution of the other defendants and with a Security and Exchange Commission receiver who is trying to find and return the investors' money. The defendants, who live in Arizona, Florida, New York, Tennessee, England and Canada, are accused of using money from new investors in three trading programs to pay earlier ones with the promise all would triple their money. The programs never existed and the money was laundered through corporations and banks on and offshore for the benefit of the defendants, according to an indictment unsealed in July. Gilliland and William S. Dohan of London allegedly started the trading programs called Hammersmith Trust, Microfund and Luxor Capital Markets. Investors were told their money would buy U.S. Treasury obligations that would in turn be leveraged in a secret trading program, according to the indictment. Eight defendants are set for trial Sept. 5. They are William Harry West, of Niceville; Melody I. Rose, of West Palm Beach; Mark D. Talley and David J. Johnson, both of Memphis; Jeffery A. Matz, Kenneth B. Cobb and Phillip L. Nesmith, all of Phoenix; Jeffery Alan Matz, of Scottsdale, Ariz.; David Bishara of Niagra Falls, N.Y. No trial dates have been set for Dohan and Jerrold L. Gunn of Winnipeg, Manitoba, a lawyer who was described as the legal adviser for the program.

Tax Loophole

A report in the New York Times stating that a so-called tax "loophole" to Bermuda should be closed to stop the flow of money and jobs out of the U.S. has been condemned as "inflammatory" by Don Kramer, vice chairman of ACE Ltd - "This is an inflammatory article, which has been written to inflame Congress, and it is written so that you, the reader, would also be inflamed." The article said "The loophole, disclosed by the New York Times in March, could cost the Treasury as much as $4 Billion a year, equal to about 2% of all corporate tax payments if every American property and casualty insurer exploited it, according to the latest estimates circulating on Capitol Hill." Mr. Kramer however pointed out that none of the figures were substantiated by the Treasury. [attribution: Royal Gazette]

US/UK DELEGATION HOLDS TALKS IN ANTIGUA

Date: October 5, 2000 Source: Antigua Sun Antigua government officials and private sector representatives met with US and British delegates to discuss the Caribbean nation’s offshore financial sector. In separate meetings, the parties addressed the function of the island’s International Financial Regulation Authority and its Office of National Drug and Money Laundering Control Policy with a particular emphasis on monitoring IBCs established in Antigua. This past spring, Antigua escaped being listed on the FATF’s blacklist of uncooperative countries in the fight against international money laundering. This was due to the country’s efforts to work alongside the US and UK on matters relating to its offshore sector. As an example of this cooperation, Antigua has reduced the number of offshore banks from 68 to 18 through its Operation Clean Slate initiative. As well, the government whittled the number of local IBCs from 10,000 down to nearly 2,000 through the implementation of new rules and regulations.

SWISS REJECT TIGHTER CURBS

Date: October 5, 2000 Source: Financial Times The Swiss cabinet rejected a motion by Geneva deputy Christian Grobet to tighten the country’s laws against money laundering. The proposal would have introduced stricter controls and obligated banks to report all accounts worth over SFr1 million that belong to foreign heads of state, ministers and public figures. Reuters quotes Mr. Grobet who says that “it is incredible hypocrisy to believe that the banks are respecting the law against money laundering.”

Mark Harris v. David Marchant Appeal

The Harris Organization financial services group of Panama has lost an appeal against a libel decision issued in August, 1999 in favor of Offshore Business News & Research and its principal, David Marchant, which publishes OffshoreAlert newsletter. Circuit Judges Tjoflat, Dubina and Barkett, sitting in the US District Court of Appeals for the Eleventh Circuit, AFFIRMED the lower court's decision in a ruling on September 29, 2000. In a brief one-page ruling, they stated: "In this appeal, appellants challenge the district court's evidentiary rulings at trial (before the court), the court's decision regarding the weight and credibility of the testimony of appellants' accountant, Luis Ovidio Rodriguez Brandao (testimony that appellants contend was uncontroverted) and the court's conclusion that appellants had not made out a claim for libel because appellants had failed to establish that appellees were negligent in publishing the disputed statements. "We find no merit in appellants' challenges and therefore affirm the district court's judgment for appellees." For those on this list who are not already aware of the background to the appeal, The Harris Organization filed a libel lawsuit against OBNR and Marchant in April, 1998 after OffshoreAlert had published a story alleging the group was insolvent, embezzling its clients' funds, involved in money laundering and being operated as a Ponzi scheme. Following a bench trial in July, 1999, Judge Michael Moore, sitting in the US District Court for the Southern District of Florida in Miami had ruled that there was "persuasive evidence" to support the allegations contained in the article.

Build Your Own Soapbox

Thanks to the Web, you no longer need access to a printing press or broadcast facility to make your voice heard. BY SETH LUBOVE THERE WAS A TIME WHEN FINANCIAL ADVICE WAS hard to come by for the average American. If anything, it is too plentiful today. The World Wide Web has created a vast forum where anyone with information or advice can offer it to a broad audience at almost no cost to the sender. Pre-Web, if you were a nobody and wanted to get your voice heard, you started a newsletter or got a book published. Getting books published is tough and you would need to spend hundreds of thousands of dollars to launch a newsletter. It costs just a few hundred dollars a year to rent space on a server and slap together a Web site to open for business. Thousands of amateur gurus are doing just that. In some cases the content is appallingly bad or even dishonest. Most of the graphics are crude and silly. Much of the content is stock touting or seat-of-the-pants commentary on the market. The long strong bull market in tech stocks has created thousands and thousands of investment success stories. Most of them are the result of what John Kenneth Galbraith is said to have once described as a "short memory in a bull market." But never mind: In a momentum-driven market it seems to work, and many of these sites have attracted loyal, if unsophisticated, followings. Follow these touts at your own risk. But say this for the phenomenon: The Web makes it cheap and easy for all kinds of people to make their voices heard--good stuff, bad stuff, irrelevant stuff. You no longer need access to a printing press or a broadcasting station to have your own soapbox. The amateur Web is a noisy place with lots of static--and some gems. In the gem category falls Jay Adkisson's www.quatloos.com. Fresh out of the University of Oklahoma law school in 1988, Jay Adkisson soon landed in the middle of a huge case involving a conspiracy to transport chemicals for weapons to Libya. Adkisson, now 36, ended up being sued himself when a lawyer for the defendant in the case accused him of libelous statements made during his pleadings. He came out of the mess with just enough money to quit his day job and later move to Irvine, Calif. The harrowing experience of being sued for something he did in the course of earning a living made him a self-taught expert on sheltering his assets from legal liability. When acquaintances starting telling him about dubious offshore asset protection schemes they were considering, he posted a rudimentary educational Web site on the topic in 1997. "I got fed up with seeing the junk," Adkisson says. A woman who claimed she had lost her $800,000 life savings in an offshore scam told him her hard-luck story. Her loss involved something called "prime bank trading" notes. "I wished I could have gotten those sons of bitches," Adkisson scowls behind dark sunglasses that cover a glass eye, the result of recent surgery to remove a cancerous tumor. "Her money was in Antigua. When that happens, the money is just gone." Nothing he could do there. but he could help protect people against similar swindles. He expanded his site into a repository of financial scams. Now called Quatloos.com, after a made-up term used on the Internet to designate a scam, Adkisson meticulously chronicles colorful and bizarre scams that range from annuity abuses to the Dominion of Melchizedek, a bogus nation well known to longtime readers of FORBES. "The nice thing about the Internet is these scammers are forever immortalized in cyberspace," he beams. Among the 50,000 to 80,000 hits he claims a week are ones from staffers of the IRS and SEC looking for leads. Tax lawyer Robert Sommers also offers useful advice--gratis--on his Web site, www.taxprophet.com. A compilation of Sommers' accumulated tomes, scam warnings and other wisdom, the site offers useful information on tax matters. In a profession that still frowns somewhat on advertising, the site is a dignified and cheap way for Sommers to solicit clients for his San Francisco legal boutique. Now he is considering expanding the site to cover another topic: employee embezzlement. Ripped off of as much as $100,000 by what he thought was a trusted office administrator, Sommers plans to offer advice about how to guard against crooked workers. This, too, can help ring in some law business. "The truth of the matter is there could be a whole bunch of warning signals that are ignored," says a chastened Sommers, who recently extracted a settlement out of Wells Fargo & Co. for its shoddy oversight of the now-incarcerated employee. But far more numerous than free-advice sites are ones run by amateur stock pickers. David Gordon, 52, of Great Neck, New York, describes himself as an "old bomb thrower" from the 1960s who marched, torched and made a general pest out of himself before joining the Army and then later teaching. Gordon built up a prosperous swimming pool and spa business until being waylaid by a life-threatening case of non-Hodgkins lymphoma in 1995. Now Gordon is a stock tipster. During grueling daily doses of chemotherapy he couldn't concentrate on reading and he was tired of movie reruns, so he tuned into CNBC. Mostly a dabbler in stocks until then, the manic rants of CNBC fixture James Cramer got him hooked on the market. When Gordon recovered, he commandeered his son's Gateway personal computer to hang out full-time on the Motley Fool message boards. He had saved some money and started playing the market. He got early into such tech darlings as JDSUniphase, and soon attracted enough of a following that Motley Fool gave him his own message board. Inspired by his online fans, he created his own Web page in January 1998, www.trenchrat.com. Why the rat? It came from an hallucination he had during blood transfusions at the depth of his cancer treatment. "That son of a bitch rat was telling me you gotta be like a rat to survive," Gordon says, now fully recovered. Under a superfluous warning that states, "Trenchrat.com is not an investment advisor and does not provide investment advice," Gordon proceeds to do just that with breezy daily commentaries ("Believe little of what you read because most of it is bogus manipulation, but there is always some truth buried in the midst of the propaganda"). He proffers a few dozen tech-stock picks divided between "long-term holds" and "stocks in play." To make the site pay, he now charges $25 a month for access and peddles "rat gear": $15.95 for a T shirt, $13.95 for a "rat" mouse pad, $14.95 for a cap. "One door opens, one door closes, my mother used to say," Gordon muses. "It's funny because if I didn't get the cancer, I'd still be out there humping pools." William Stein, 27, is director of information technology for an engineering firm in Canonsburg, Penn. A lucky stock pick turned him into an Internet advice giver. In the summer of 1997 he bought shares in an Internet portal called Infoseek when it was trading at about $5. By the time he bailed in January 1999, the stock had soared to over $83. Friends and acquaintances hounded him for the secret of his stock-picking techniques. "People were fascinated that I picked a stock like that and had the patience to hold it," Stein says. So he obliged them. Early in 1998 he set up www.stockiceman.com. Today, it is a graphics-challenged mélange of stock picks, stock-picking tournaments, bare-bones commentary and, perhaps regretfully, a history of Stein's performance (up 23% for all of 1999, but down for most of the year so far). Russell LiPuma manages his Web site, www.stockwerld.com from his bedroom near Buffalo, N.Y. He lacks formal financial training, unless you count the time 20 years ago when he briefly worked for an outfit peddling junk bonds that were really junky. LiPuma, 39, is by profession a maker of furniture and cabinets. "I was totally computer illiterate," he says. "I didn't even know how to turn it on." But now he's a stock market guru--and a popular one. Under the name of Mystifier on Clearstation.com and on his Web site, www.stockwerld.com , LiPuma attracts 2,000 hits a day from folks who want to read his stock picks, financial commentary and trading strategies. Early on, he used to just lift his picks straight out of big mutual fund prospectuses. "I'm not in it for the fame or glory," LiPuma adds. "People write to me and say, 'I made money off of this because of you,' and that makes me feel good. I've been able to help other people." He claims his success has attracted people who want him to manage their money. He says he's managing portfolios for seven people now, and has four more in negotiation. "But I don't want to get any more because it gets too hard," he sighs. Yeah, and in managing money, unlike in tossing out advice, you are held accountable. But don't get us wrong: We love the Web. It helps democratize expressions of opinion. Makes it easier for ordinary folks to start a business. We just think people should be both selective and skeptical about what's out there.

New U.S. Internal Revenue Ruling

The Internal Revenue Service released a "private letter ruling", released on June 15th, 2000, (PLR 200024024,) which imposes a new duty placed on U.S. banks and other financial institutions that may possibly have offshore investors as customers. According to our interpretation, these institutions will have to withhold 30-31% of any U.S. securities holdings unless they can state that the holder of the account is not a U.S. Beneficiary. Internal Revenue Code section 894(c) handles this area.

Antigua And Barbuda Ambassador Discusses OECD Blacklisting in Washington

There has scarce been a furor on such a scale as that caused by the Organisation for Economic Co-operative and Development (OECD) list of nations deemed to possess harmful tax practices, published in June. The impact has been huge and largely centered in the Caribbean, given that several islands there were included. These included Antigua and Barbuda, and last week its Ambassador, Lionel Hurst, called for "fair play" by the US over the blacklisting. Along with other Caribbean ambassadors, Mr. Hurst was meeting with the US government at the US State Department in Washington to discuss an issue which in their eyes is "pitting large and wealthy states against the smallest and poorest nations." Mr. Hurst made clear Antigua and Barbuda's opposition to the OECD's initiative against what he sees as simply small states offering low taxes to foreign corporations and wealthy investors, not the "harmful" and "damaging" tax practices alleged by the OECD. He said: 'We believe that the favourable tax treatment, which low-tax jurisdictions offer to certain categories of corporations and investors, is good for the overall functioning of the global economic system, because that system requires competition for improved performance of all players, both large and small. We have not seen any evidence of a race to the bottom, as some have argued.' Ambassador Hurst pointed out to the US officials that even within the US, the smallest states provide similar low tax incentives to encourage businesses to relocate there. He argued: 'Small states around the globe need a fair, efficient and low-cost multilateral dispute settlement mechanism, which serves the same function performed by the US constitution and court to all 50 states within your nation.'

Jersey Close To OECD Deal As Business Continues To Boom

The OECD attack on certain jurisdictions deemed to possess "harmful" tax regimes has naturally caused anger and outrage in those jurisdictions, with public officials and business figures decrying the now infamous "naming and shaming" campaign. Jersey has been no exception, but it seems the small British dependency has needlessly been shouting itself hoarse. Many observers are of the opinion that Jersey, along with Guernsey and the Isle of Man, is actually closer to settling with the OECD than some might think, and will be able to get itself removed from the OECD blacklist and avoid the economic sanctions threatened against offshore centres that fail to co-operate. The outcry over the OECD initiative stems not just from the threatened sanctions but from the fear of damage to reputations. However, it seems that Jersey has suffered little in that respect. Anthony Dessain, a Jersey advocate and notary public, has expressed his indignation at the OECD blacklisting, slamming the action of the OECD as wrong and unhelpful, but added: 'I am not sure it has been terribly harmful either. Business is flowing in as we speak.' Jersey has certainly been one of the more outspoken jurisdictions in condemning the list of 35 tax havens published by the OECD in June as part of a campaign against tax evasion, on which it appeared alongside its Channel Island neighbor Guernsey and the Isle of Man. The OECD claimed the dependencies fell short of acceptable standards of transparency and exchange of information with overseas tax authorities and all three have until next summer to agree to mend their ways.

OECD Defers Publication of Blacklist

The OECD has deferred until July 2001 the publication of an official “blacklist” of tax haven jurisdictions regarded as having harmfully competitive regimes. It is possible that this deferral has been prompted by strong criticism from the powerful Business and Industry Advisory Committee to the OECD. The advisory committee has stated its view that: 1. Tax competition is a healthy phenomenon, and 2. It is unwarranted taxation by governments rather than competition between them, which is harmful. The OECD, via its Forum on Harmful Tax Practices, is responsible for drawing up a list of countries that qualify as being tax havens, taking into account factors set out in The Tax Competition Report. The chief indications of tax haven status are: 1. No or nominal taxation 2. Lack of workable exchange of information between governments 3. Lack of transparency to facilitate external government inquiries 4. Absence of requirements for substantial activities For its part, the OECD has indicated that the deferral of the official blacklist is to facilitate the co-operation of the offshore jurisdictions, so that they might avoid being named on the list of uncooperative tax havens to be published on 31 July 2001. According to Quinn Sutton, an Offshore Corporate Services consultant that works closely with Nevis American Trust in Nevis, West Indies: “As traditional financial centers are changing their laws, business is shifting to other jurisdictions. Many of these jurisdictions have been placed on the potential OECD blacklist. Interestingly, this blacklist has served as "free advertising" for these jurisdictions and they appear to be experiencing increased business activity as a result. Let's hope that those in positions of authority in the “tax haven” jurisdictions consider carefully the impact of their decisions. To simply cave-in to a U.S. led effort to destroy offshore financial services will correspondingly destroy the booming business activity spawned in these typically small island jurisdictions and potentially drop their fragile economies into the dumpster. Being on the “blacklist” is not necessarily a bad thing and countries with courage may end up collecting a huge surge of new business.

The Nigeria Scam Returns!

PRIVATE AND CONFIDENTIAL 11TH SEPTEMBER, 2000. Attn: The President, I am Dr. Chukwubiko Anthony, the personal assistant (PA) to her Excellency Dr. (Mrs.) Maryam Abacha, wife of the late Head of State of Nigeria. The death of General Sani Abacha came as a big surprise to all including the wife and therefore all loose ends were not tightened up before he died. The two successive Governments has been probing the Government of late General Sani Abacha of which over US$5.5 Billion has been recovered from her Excellency Dr. (Mrs.) Maryam Abacha and children of which one of the them is facing trial and another has been arrested last week for the same purpose. During the regime of General Sani Abacha a lot of money realized through oil proceeds were withdrawn cash and being used for some personal projects, therefore when he died, the wife had over US$200 Million at her disposal. Due to security watch over her, she mandated me to move these funds out of the country with the aid of some security operatives. We have been able to move out the total sum of US$80 Million so far to an oversea country through Diplomatic means by shipment, and we therefore require a very reliable and trusted person who can assist us in receiving this fund overseas. With the consent of her Excellency, we have agreed to part with 30% for the foreign partner and the remaining 70% will be for the owners of the fund. I went into detail to explain the source of this fund and the persons involved but do ask that you keep this transaction confidential, as the personality involved will not like to be exposed. If you indicate interest in doing the business with us, I will furnish you with more details. On the receipt of this proposal, I expect you to reach me through a return E-mail: uchie.kanu@eudoramail.com or Fax Number: 234-1-7591432. Best Regards, Dr. Chukwubiko Anthony

Group tries to Rescue First Bank of Grenada

A relatively unknown group called the G-77 World Trade & Development Bank (G-77 Bank) had put forward a number of controversial proposals aimed at rescuing the financially-strapped First International Bank of Grenada (FIBG). The FIBG, an offshore financial institution, once a show piece initiative of the ruling New National Party (NNP) government of Prime Minister, Dr. Keith Mitchell has virtually collapsed with millions of its depositors money vanishing. The so-called rescue plan for First Bank was outlined in a letter sent to a senior government minister in Grenada by a trustee of G-77 Bank, Boney M. Katatumba. In the letter, the official warned the Mitchell government of the need to rescue FIBG in an effort to avert "an international scandal" for Grenada over its closure. Katatubma made an offer of US$14 million to the NNP government in cash in the form of a development loan to be used on building hospitals, schools, roads and other "direct development projects the government wishes to undertake" in Grenada.

Is Your Client Part of an "Abusive Trust?"

Practically all of us were taught when we were young not to accept candy from strangers. Unfortunately, a new predator has evolved, getting his victims to forget this lesson with the lure of eliminating their taxes. The sweet deal offered by these promoters is an abusive trust, and the number and variety of these schemes is proliferating. Abusive trust promoters prey on the unwary, and since establishing a trust can be complex, there is widespread potential for fraud. Trust returns are now the third most frequently filed income tax return (behind individual and corporate). Most trusts serve a legitimate purpose like protecting and managing assets for beneficiaries, avoiding probate, and serving as a will substitute. Two key characteristics of legal trusts are that they separate control of the assets from the benefits of ownership, and they are controlled and managed by an independent trustee. Illegal trusts are pernicious because they appear to be legitimate and they are promoted by the promise of tax avoidance. They consist of business or personal assets and the income of the taxpayer is assigned to it. Although a trustee is named (usually the promoter or a designee), there is no real change in control or benefits. A number of abusive techniques are used to evade tax including: -- depreciating personal assets; -- deducting personal expenses; -- avoiding the filing of returns; -- underreporting income; -- wiring income overseas and failing to report it; -- splitting income over multiple entities, often filing in multiple locations; and -- attempting to hide transactions through bank secrecy laws in tax haven countries. New scams continue to appear as promoters rely heavily on the Internet to market their products. They are using terms such as pure trust, constitutional trust, sovereign trust and unincorporated business organization. There are two prevalent fraudulent arrangements that are being promoted, the "domestic package" and the "foreign package." The domestic package involves a series of trusts that are formed in the US, while the foreign trust packages are formed offshore and outside the jurisdiction of the US. Trusts involved in the schemes are vertically layered with each trust distributing income to the next layer. The goal of this layered distribution of income is to fraudulently reduce taxable income to nominal amounts. Customers typically pay high setup and maintenance fees (to be offset by the alleged tax savings), and are often advised not to seek the advice of a tax professional. Following that advice is costly since establishing an abusive trust can have permanent adverse legal consequences. It may also result in the assessment of civil penalties of up to 75 percent of the tax due to fraud, or criminal prosecution and conviction with fines up to $250,000 and/or up to five years in prison for each offense. Very few preparers are involved in trust schemes but they do prepare the 1040s for clients that do get involved. The IRS asks for your help in identifying abusive trusts. One clue to look for is significant changes from year to year, such as a Schedule C that disappears, or a major change to Schedule A. The IRS asks that you please report a questionable trust arrangement to your local IRS office or call (800) 829-0433. As a tax practitioner we have to first determine if the taxpayer is a "client". If so then based on our professional ethical and legal rules we may not be allowed to inform the IRS. But, if we were to hear about a questionable trust and we did not have any clients using that trust we may wish to consider informing the IRS. The IRS says abusive trusts will come under greater scrutiny by the new IRS. They will continue to increase their compliance efforts through a national strategy that uses all the tools available to law enforcement within the Service and the Department of Justice. So are your client(s) in an abusive trust? [attribution: Electronic TaxTalk News, Sept 1, 2000, Editor James Counts II, CPA, email: cpa@pe.net]

Offshore bankers in Grenada Charged with Fraud

Caribbean News Association St. George's, Grenada, September 1, CANA - Two Canadian offshore bankers in Grenada have been charged by police with offences relating to the troubled First International Bank here. A report in Thursday's edition of the Grenada Today newspaper identified the two as David Springer and Peter Bean. Springer and Bean have already made their first court appearance and were placed on bail of 10,000 Eastern Caribbean dollars (US$3,700) following their arrest in St. George's. Grenada Today is reporting that Bean a lawyer by profession was nabbed at the Point Salines International Airport as he attempted to board an aircraft. Springer has been charged with three counts of fraudulent breach of trust and three counts of attempting to defraud, while Bean was charged with six counts of aiding and abetting. Chief magistrate Patricia Mark has ordered the suspects to return to court on November 3. The case laid against Bean and Springer is that they allegedly attempted to defraud a local bank of over EC$100,000 (US$37,000) in funds lodged by First Bank. The Grenada Today quotes police as saying the two are also alleged to have defrauded another local bank of over half a million dollars in funds belonging to First Bank. Police are also said to be looking for two other offshore bankers associated with First Bank, Larry Barnabe and Colin De Souza to lay similar charges against them, but the two are believed to have fled the country. The arrest of the offshore bankers comes at the height of a government probe into the operations of First Bank following its refusal to comply with the state's request for a proper audit of its accounts. Government has since taken control of First Bank and Accountant General Garvey Louison is carrying out a 21-day review of the controversial offshore institution and will report his findings to finance Minister Anthony Boatswain.

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